Bloomberg.com, January 2, 2007, Tuesday

Bloomberg.com, January 2, 2007

Workers of the World May Get Bigger Share of Prosperity in 2007
By Matthew Benjamin and Simon Kennedy
http://www.bloomberg.com/apps/news?pid=20601109&sid=apK8Eq_S1dj4&refer=home


Jan. 2 (Bloomberg) -- Workers of the world are demanding a bigger share of global prosperity, and this year they may get it.

Political shifts in the U.S., Europe and Asia increase the chances that 2007 will bring labor higher pay and stronger job protection after five years in which its share of economic gains fell. ``The pendulum of economic power might well begin to shift from capital back to labor,'' says Stephen S. Roach, chief global economist with Morgan Stanley in New York.
While that's good news for workers, the result may be a squeeze on corporate profits and stock prices, economists say. Roach, for one, foresees ``a very challenging and difficult environment for global stock markets,'' with heightened risks of protectionism, accelerating inflation and higher interest rates.
Labor's advocates argue that workers have been left behind while business owners have benefited disproportionately from the strongest world economy since the 1970s. Among the Group of Seven major industrialized economies, workers' share of national income shrank to a record-low 54 percent last year, while the share going to profits rose to 16 percent from 10 percent five years earlier, according to Morgan Stanley research.
Wages in the dozen nations sharing the euro barely shifted last year even as the region, which expanded yesterday to include Slovenia, enjoyed its strongest growth in six years. ``Economic data is so good that employees must have a share in the success they've helped to bring about,'' says Juergen Peters, head of IG Metall, Germany's largest labor union.

`A Seismic Reaction'
The disparity is fueling what Sean Sweeney, director of the Cornell Global Labor Institute in New York, calls ``a seismic reaction brewing to the maldistribution of wealth.''
In the U.S., where a December Bloomberg/Los Angeles Times poll found almost three-quarters of Americans consider the growing income gap between rich and poor a serious problem, the Democratic Party's takeover of Congress increases the chances of passing a higher minimum wage. It also will give additional impetus to legislation making it easier for unions to organize at companies such as Wal-Mart Stores Inc.
Meanwhile, China's leaders are boosting wages and encouraging unionization efforts at foreign-owned firms. And IG Metall, which already won the biggest pay raise in more than a decade for 85,000 German steelworkers, says it now wants ``significantly more money'' -- up to 7 percent -- for more than 3 million metals, electronics and auto workers this year. IG Metall's pay accords act as benchmarks for other unions in Europe's largest economy.

Central-Bank Concerns
The realignment now underway may add half a percentage-point per year to labor's share of national income over the next three to five years, while reducing capital's share by the same amount, says Morgan Stanley's Roach. That might be cause for concern among central bankers, who warn that higher labor costs may trigger price pressures. European Central Bank President Jean- Claude Trichet told reporters on Dec. 7 that the possibility of inflationary wage demands is a ``risk which we do consider to be on the upside.''
Not everyone expects significant gains for workers. Immigration and cheaper labor in Asia and Eastern Europe will continue to keep a lid on pay, says Ronald Janssen, economics adviser to the Brussels-based European Trade Union Confederation. ``Wage gains have been very modest and will remain so,'' he says.

`The Time Has Come'
Still, ``even employers are saying the time has come to share the strong profit growth with employees,'' says Julian Callow, chief European economist for Barclays Capital in London. And workers can already point to tangible gains in several countries.
In Spain, Prime Minister Jose Luis Rodriguez Zapatero sealed a deal with unions and employers on changes to labor laws that left out one of business's key demands, a provision to make it easier to get rid of permanent workers. Italian Prime Minister Romano Prodi reversed a policy of Silvio Berlusconi's government by reinstating collective bargaining on issues like pension reform.
In the U.S., the likely passage of a higher minimum wage will raise pay directly for about 4 percent of the workforce, and indirectly for many more, according to the Center for Economic and Policy Research in Washington.
Prospects aren't as clear for the Employee Free Choice Act, which would make it easier for unions to organize at Wal-Mart and other companies. While the legislation would probably trigger a veto by President George W. Bush, just the threat of such a law may be enough to induce companies to make concessions to workers, says Robert Bruno, professor of labor and industrial relations at the University of Illinois at Chicago.

Stars Aligning
``The stars have kind of aligned for labor in the U.S.,'' says Bruno, noting that labor advocates such as Representative Charles Rangel of New York and Senator Edward Kennedy of Massachusetts will be in charge of key congressional committees.
Even in China, where widening income inequality has accompanied rapid economic expansion, ``there's been a policy shift similar to what's happening in the U.S.,'' says Christopher McNally, a specialist at the East-West Center, a Honolulu research group. Cities such as Shenzhen and Dongguan are raising the minimum wage, while the central government is encouraging unionization at larger companies, especially foreign ones. Two thirds of Wal-Mart's stores in China have set up trade-union branches.

Allies' Gains
In democracies, workers' muscle-flexing is translating into electoral gains for labor-allied parties. The Netherlands' Socialist Party gained the most seats in November's election, a month after Austria's Social Democrats unexpectedly won an election with promises to reduce unemployment.
And in France, Socialist Segolene Royal, who says the state ``must have a function'' in protecting workers from the effects of globalization, is tied in polls with Nicolas Sarkozy of the ruling Union for Popular Movement party ahead of the spring presidential election.
Politicians who have traditionally been more business- friendly are also making overtures to labor. German Chancellor Angela Merkel, who previously rejected calls for wage increases from her Social Democratic coalition partners, said on Dec. 5 that ``one has to think about it'' in ``booming sectors and in booming companies.''
Around the world, says Richard Exell, senior policy officer at the Trades Union Congress in London, ``there's a growing feeling that things have gone too far, and that there needs to be a rebalancing.''

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net ; Matthew Benjamin in Washington at mbenjamin2@bloomberg.net Last Updated: January 1, 2007 20:31 EST